In a Huge Deal For the Chinese Web, Youku and Tudou Merge

Stop the presses! It has been announced moments ago that China’s two largest video-streaming sites, Youku (NYSE:YOKU) and Tudou (NASDAQ:TUDO), have signed a deal to merge. Or, rather, Youku will swallow up Tudou in its entirety.

It will involve a 100 percent stock-for-stock transaction between Youku and Tudou that will end up with “Youku and Tudou shareholders and ADS holders owning approximately 71.5 percent and 28.5 percent of the combined entity, respectively.”

The resultant merged company will be called Youku Tudou Inc., and will retain the $YOKU stock ticker. It looks like both the respective sites, Youku.com and Tudou.com, will go on as they are under their separate brands and URLs.

We believe the agreement between Tudou and Youku is already signed and on the books, but because they’re both publicly listed companies, the US SEC will need to approve the deal; and until that happens, we’re not likely to hear much more out of either company. We have reached out to both Youku and Tudou and will update if they’re able to say anything on the record – at the moment, they cannot speak publicly about this.

But, in the official announcement, Victor Koo, founder, and CEO of Youku, said:

We intend to lead the next phase of online video development in China. Youku Tudou Inc. will represent a differentiated leader in the online video market in China with the largest user base, most comprehensive content library, most advanced bandwidth infrastructure and strongest monetization capability within the sector. Youku Tudou Inc. will have the reach and scale to bring our users high quality content at high speeds. The combined company will have the two leading online video brands in China: Youku and Tudou.

Tudou’s Gary Wang added:

Youku and Tudou share a vision for the future of online video in China and how to deliver the best user experience possible. This transaction further strengthens our market position as Tudou brings its valuable brand, library of professional licensed content, user generated content platform, extensive user base, broad range of partnerships and expertise in mobile video.

The new company will have, far and away, a huge market share in the online video sector, representing quite a threat to the likes of Ku6 and Baidu’s iQiyi. According to figures from last year, the two companies account for about half of the entire video market themselves, with Youku at about 30 percent and Tudou at about 19 percent (see chart below)

Update: Big thanks to Will Moss for pointing out that iResearch’s Q2 figures vary greatly with Analysis’s Q4 numbers that put Youku+Tudou at 35.5 percent, as cited in The Wall Street Journal. We’ll keep the chart intact below, but do note that it’s for Q2. (RM)

There was speculation last spring that Youku would acquire Tudou. And while that didn’t materialize in 2011, these two leading online video providers in China would go on to have a colored relationship over the next year. We saw the two in a legal tiff regarding TV show content rights, and eventually we even saw Tudou block Youku’s Soku video search from indexing its content.